Do you suspect your business partner is stealing money from the company’s bank account? Are jobs you should be getting not being signed up and you think are diverted somewhere else? Does it seem like your partner is taking more than his fair share in expenses, perks or draws? Or maybe your partner isn’t pulling his weight like you agreed when you first started out?
Don’t let these suspicions fester, infect and spread throughout your whole company. It could be fatal. Unanswered questions and uncertainties about improper spending, unjustified expenses, mismanagement and even embezzlement need to be answered and addressed promptly. If they are not, the distrust will wreak havoc on a business. In fact, it can be the beginning of the end for an otherwise successful company. You need to act swiftly and firmly to stop any disagreements, conflicts or fights between the owners of your business as soon as possible.
Understanding Your Rights as a Minnesota Shareholder
In order to get control of any suspected wrongful acts your business partner, or partners, may be up to, you need to know the law, what your rights are and what obligations are imposed on business owners. If you are a member of a Minnesota Limited Liability Company, a shareholder in a Minnesota corporation, or a partner in a Minnesota business partnership, you have significant rights that should be respected and honored. It doesn’t matter if your small business is an s-corp, or if you hold shares in a family-owned corporation or if you only own a small percentage of an LLC. You still have rights!
You deserve, and the law insists, that your business partners are loyal to you and your company. You should expect, and Minnesota law requires, honesty and candor among small business owners. You have a right to be kept informed about important things going on with your business.
In many instances, your business partners cannot have interests that directly conflict with your company’s interests. Owners are to put the business first and their personal interests second. You should be kept informed.
It does not matter if you only own 10% of the business, the law requires the company’s vital financial information to be shared with you. That means the partner who does the books and is the only one with access to the business bank account, has to share certain important financial information with you. All of this is true and applies if you have a Minnesota small business corporation with less than 35 shareholders, to most LLCs and almost all partnerships.
Founding Shareholder Protections
If you are a founding shareholder (or member of an LLC) and work for your company as an employee, the protections provided to you can be even greater. You may have rights that prevent the controlling owners from firing you. You may have rights to receive distributions or draws just like the other owners are getting. You may have a right to reasonably expect to keep your job for the rest of your life. You may have rights to have the same expenses paid as your partner. You may have rights to the same perks the other shareholders get.
To find out for sure, you need to talk to an experienced Minnesota attorney who helps people that are being treated unfairly by their business partners. You need to talk to an attorney that helps small business owners have a say in the way the business is ran. You need to talk to an attorney that protects the rights of family members that own part of their family’s business. You need to talk to an attorney who protects a business owner from being treated unjustly while going through a divorce. You need to talk to an attorney that helps frozen out owners get a fair price when being bought out under a buy-sell agreement. You need to call MKT Law.
When Majority Owners Freeze Out a Shareholder
In a lot of cases, those who own most of the business, the controlling majority owners, will abuse the power they have and unjustly treat the owners with a smaller, non-controlling minority interest. It is not uncommon to see a shareholder frozen out of a closely-held corporation.
This can involve
- Restricting information
- Taking away managing rights
- Not issuing distributions or limiting draws
- Making unfavorable changes to an owner’s job
- Taking actions that significantly affect rights without any notice, meetings, or input
A shareholder in a close-corporation or member of an LLC without 50% is uniquely situated to be unfairly by oppressing their ability to participate in the business and prejudicing their ability to receive profits. Unfortunately, a business partner you once trusted, who treated you fairly and was always honest, can become deceitful, self-interested and fraudulent.
The business partner that has turned on you can strip your rights and harm your investment into your business if you do not have enough voting power to force changes and take control.
The ways this can be accomplished are innumerable and can involve
- Taking actions without notifying other partners, members or shareholders
- Changing the rights provided by, or for the first time enacting buy-sell agreements or shareholder control agreements
- Imposing stock restrictions or altering operating agreements
- Not paying out dividends or authorizing distributions
- Having others invest and become owners in a way the decreases the rights of existing owners
- Stripping a member of their management rights
- Requiring the resignation of a shareholder from their position as an officer or director
- Changing how the price or value of shares are calculated
- Putting in place procedures for triggering buyouts designed to affect one member or group of members more than others
This can be caused by personality conflicts, by disagreements over the control and direction or future of a company, and by pure and simple greed. Or there may be evidence of a business partner cheating you, embezzling from the company or taking “side jobs” for themselves that should be performed by the business. If the trust you once had in your business partner is gone, or if your fellow shareholder is no longer loyal to you and your corporation, it is time to take action.
Reach out to MKT Law, PLC Today
Do not let these issues infect and spread throughout your company by not addressing them right away. Unresolved contentions between owners causes instability within a business that can prove fatal to successful operations. If this is happening to your business, you need legal assistance with a partnership dispute, you have come to the right place. At MKT Law, PLC, our St. Paul and Minneapolis business litigation practice is dedicated to protecting clients' ownership interests in their businesses. How? We take aggressive action to protect their interests, and have developed a reputation for aggressive and effective advocacy.
Call (612) 260-5109 for your confidential case review.
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